Russia wants to go euro with Indian defence deals : Reports

Moscow, June 5 (UNI) Russia's arms export orgnization Rosoboronexport has proposed to India to convert the previously signed arms contracts to euro, saying the dollar was falling and arms manufacture at agreed prices was becoming ''unprofitable''.

The two mega-contracts concerned are the supply to and licensed production in India of 230 Su-30 MKI fighter planes (over 4 billion dollars) and the delivery of the Vikramaditya (formerly Admiral Gorshkov) aircraft carrier with an air group of MiG-29K fighters (over 1.5 billion dollars), Vedomosti newspaper reported.

The paper said an alternative solution proposed by Russia, in the first case, was to increase the annual price indexation from 2.55 per cent to 5 per cent.

India will agree to convert the contracts to euros if the price is indexed at 2 per cent annually. The deadline for India's reply is June, it added.

For Rosoboronexport, reducing currency risks in the wake of the strengthening rouble is one of the key objectives, a company spokesman said.

An official of one of the Su-30 MKI subcontractors said the proposal to calculate prices in euros applied to all long-term supplies of Russian weapons. As the rouble strengthens, costs increase and contracts become unprofitable.

Konstantin Makiyenko, an analyst with the Centre for Analysis of Strategies and Technologies, said the Russian proposals were quite justified.

He said in 2000, when the contract was concluded, no one expected the rouble to strengthen so fast.

'' Similar talks should be held with China: the falling dollar combined with ongoing inflation were a reason for freezing a contract to supply 38 Il-76 military transport planes (over 1 billion dollar),'' Makiyenko said.

'' Such moves are already underway. Most new contracts will be pegged to euros or a basket of currencies,'' the newspaper said quoting the manager of one of the state banks.

An added advantage would be avoiding settlements via American banks, depriving the secret services of information about the size of commission and awards to Russian suppliers, said a defence sector manager.

UNI